2007 Poultry Industry Outlook Dr. John C. McKissick Department of Agricultural and Applied Economics Director – Center for Agribusiness and Economic Development Poultry Outlook Summary Broiler producers suffered the double whammy of significantly lower prices and increased production costs in 2006. As a result, US producers slashed planned production growth by more than half from 4% to less slightly more than 1%. While a more moderate growth rate helped stem the price decline, it has not restored optimism for yearly average prices to reach back into the 70 cents per pound level of 2004-05 (figure 1). A restoration of both domestic and export demand to the levels experienced before world-wide avian influenza pandemic concerns will be needed to push 2007 prices back into comfortable profit levels. While export market deterioration is often cited as the major price obstacle in 2006, exports actually ended the year above 2005 export levels (figure 2). Despite the industry holding 2007 production growth to 1% or so, yearly average prices may better 2006’s by a few cents reaching into the mid 60 cents per pound level unless domestic white meat demand recovers. Even the third largest corn crop on record could not save the major feed ingredient, corn, from doubling in price by year’s end. Even stronger competition for the 2007 corn crop from ethanol producers makes any feed cost decline unlikely. Energy costs will continue to moderate some in 2007 but will remain at relatively high levels. As a result, total broiler production cost will be about the same as in late 2006. Turkey producers held the line on growing production in 2006 despite a third profitable year. Also, turkey demand remained strong in 2006 resulting in mid 70 cent per pound prices, the third straight year of 70 cent and above turkey prices. If turkey producers can discipline themselves to production growth of 2% or less in 2007, a fourth year of 70 cent plus prices seems probable. Even with elevated production costs, the unprecedented string of profit years will continue for turkey producers in 2007 provided turkey meat demand continues to buck the soft demand observed in other poultry markets. Egg producers sloshed their way through another marginal profit year in 2006 despite holding the line on production gains. However, egg demand and prices seemed to be improving some two years after the 2004 mid- year collapse perhaps foretelling better times for 2007. With production on the increase again, continued gains in egg demand will be needed for 2007. Despite an anticipated 2007 production growth, egg prices for the year as a whole may average in the low 80 to upper 70 cents per dozen range, producing the first real industry profits in more than two years despite high feed cost. Broiler Profit Outlook Broiler producers enjoyed excellent profit years in 2004 and 2005. As a result, producers were expected to increase production by 4% to 5%. Significantly higher production costs, combined with an apparent decline in domestic as well as export demand for poultry products, caused producers to rethink. As a result, by mid-year 2006, producers were placing fewer chicks and production was slowing. If not for increased bird weights, total broiler meat production would have only equaled 2005 production rather than increasing by1.3%.
Broiler production costs were higher in 2006 as a result of increased energy prices and escalating feed cost. Feed cost increases were a result of the strong corn demand base including a 30% increase in corn use for ethanol production. Feed cost could have leaped even higher in 2006 had it not been for the third largest US corn crop on record. The prospects for another 30% or so increase in corn ethanol production in 2007 makes for a tight balance between supplies and the surging non-feed use demand. Feed cost for 2007 will remain high and will threaten to move even higher should 2007 crop prospects falter and/or export demand builds further. Energy costs will not likely exceed 2006 levels and may relieve some of the profit threats from higher feed cost. US broiler meat exports in 2006 were usually painted as the broiler meat demand culprit. However, overall broiler exports were up by .5% from 2005 (figure 2). Exports were highly variable during the year as individual country bans were imposed and lifted. Russia, the US’s largest broiler importer, was also on the import sidelines for the first part of 2006 but finished the year strongly along with several of the Commonwealth of Independent States. Favorable exchange rates and competitive broiler meat prices favor another 3% to 4% export growth in 2007. Unanticipated trade interruptions have become the norm of the last few years and make export prospects difficult to forecast. While export demand did not necessarily suffer in 2006, a reduced demand did express itself in terms of reduced prices for individual meat cuts and may provide some clues about overall broiler demand. Dark and white meat prices were down in 2006 from 2005’s levels. Leg quarters were roughly a third lower in 2006 than in 2005, declining around 10 cents per pound in 2006 from 2005. Since dark meat is the primary export item, it is apparent that foreign demand declined enough to require reduced prices to spur US exports. Of course, with all the foreign Avian Influenza problems and associated press, if was likely that foreign consumers react negatively. More surprising was the apparent decline in demand at home. Breast prices were down my more than 20 cents per pound on average in 2006 from 2005 (figure 3). At times during the year, whole breast prices dipped below $1 per pound before recovering later in the year. Signs of an improving broiler demand were apparent late in 2006. For the year, the equivalent whole bird price was down about 10%. 2006 was the first year since 2003 that broiler prices did not average 70 cents per pound or higher and the 64.5 cent average was only slightly higher than the 2003 average. With the negative surprise of 2006 in mind and the strong competing demand on the feed supply, broiler producers seem likely to hold to scaled down production plans. For the year, 2007 production may be up only1%. A repeat of 2006’s broiler growth would leave 2007 per capita supplies about 1 lb. less than in 2006. Provided white meat demand stabilizes or grows some in 2007 and a negative export surprise is not encountered, prices may improve slightly from the 2006 average into the upper 60 cent per pound range. Consolidation within the industry and grower concerns about high heating cost will provide even more uncertainty to the outlook in 2007. Table 1. Broiler Outlook Summary 2004 2005 2006 2007 Broiler Production (Mil. Lbs) 12 City Price (Cents/Lb.) 34,063 74.10 35,365 70.80 36,016 64.50 36,575 67.50
Source: USDA and The University of Georgia Egg Industry Outlook Egg producers sloshed their way through a second marginally profitable year in 2006. Egg production was held to about the same level as in 2005. Prices were some 5 cents per dozen higher in 2006 than in 2005 as a result. As the year progressed, egg demand and prices seemed to be improving almost two years after the 2004 mid- year egg price collapse. Egg production will increase modestly in 2007. An increase of 2% or less could spell continued price improvement provided egg demand gains continue. Despite the anticipated 2007 production growth, egg prices for the year as a whole may average in the upper 70 to low 80 cents per dozen range, producing the first real industry profits in more than two years, despite high feed cost. Table 2. Egg Outlook Summary 2004 Egg Production (Mil. Doz.) 7,440
2005 7,504
2006 7,569
2007 7,650
Grade A NY Price 82.20 65.50 (Cents/Doz.) Source: USDA and The University of Georgia
71.40
80.00
Figure1. Broiler Prices, 12-City Composite
Cents Per Pound
Avg. 200004
77 72
2005
67 62 57
AP R JA N L O C JU T
2006
Figure 2. US Broiler Exports, RTC Weight
Mil. Pounds
600 550 500 450 400 350 300
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Avg. 2000-04
2005
2006
Figure 3. Wholesale Chicken Breast Prices, Skinless/Boneless, Northeast Truckload
Cents Per Pound
180 170 160 150 140 130 120 110 100 90
AP R JA N L O C JU T
Avg. 200004
2005
2006